Managing Inventory

Inventory is a fickle concept. You want to have the product on hand when you need it such that it does not impede with efficiency. Yet the cost of having the product sitting idle on the shelf implies two costs; the cost of the product sitting there, and the profit lost from not storing products that readily sell and/or produce a better margin. The cost of the storage space to hold your inventory needs to pay for itself.

Here are a few suggestions to help you manage what you store on hand:

• Implement an electronic system that has an accurate count of the items on hand in inventory. Know what the reorder points are; that is, at what stock level do you need to consider placing an order with your supplier? Take into account the time of delivery and availability. The automated system can alert you when orders should be placed, and for what quantity.
• Know the margins of each product – the highest gross profit after deducting the direct cost from the sales price.
• Know which products have the fastest turnover – the number of hour/days they are on the shelf before being sold. Though it may be obvious, the more times you can sell a product from the shelf where it is stored, the more gross margin you can earn on that product. An ideal state would be the highest margin products selling the fastest. This simple strategy is often overlooked in a warehouse.
• Warehouse logistics. Who is doing what? What is going where? Make sure the flow of deliveries and withdrawals is smooth and predictable.
• Know when and how much of a product you need to have on hand. This could be from a change in production demand. Or perhaps you have seasonal variances that warrant adjusting the amount of inventory you have available to meet your needs.
• Warehouse safety. A clean, well-organized warehouse not only promotes efficiency, but it also helps ensure safety. This also adds to employee satisfaction; both in terms of organization and their personal safety.
• Consider Just-In-Time (JIT) production systems. In today’s world of fast and dependable ordering and delivery, this option eliminates the need for storing the products on your own shelves.

One word of advice before you discard an item that is rarely used, assess how important it would be to have it available when needed. And how difficult it is to get it when needed. Are there any issues with finding a supplier of the part? Are there shipping issues? Or price increases? How often is it needed? These are questions to ask yourself and those in the company who fill orders from the stockroom. If it is not critical in today’s operations, and easily replaced when needed, let it go.